Despite Q1FY21 being significantly hampered by Covid-19 headwinds, Relaxo Footwears reported a steady performance, depicting inherent strength of the brand and strong business model. Disruptions owing to store closures (till first week of May) weighed on its performance. However, post lockdown relaxations, green shoots were visible with strong demand for low ticket size products like slippers/open sandals (~67% of product portfolio). Revenue for the quarter de-grew by 44% YoY to Rs. 363.6 crore (vs. estimated decline of 60%). On the profitability front, gross margins fell 420 bps YoY to 50%. However, sharp rationalisation of fixed overheads (other expenses, employee expenses down 61%, 22% YoY, respectively) arrested the EBITDA fall. Subsequently, EBITDA margins contracted merely 70 bps YoY to 15.7%, with absolute EBITDA declining 46% YoY to Rs. 57.0 crore. Other income grew 4.5x YoY to Rs. 6.8 crore (Rs. 5.1 crore pertains to lease rent waiver). Effective tax rate came in at 25% vs. 35% in Q1FY20. Ensuing PAT declined 51% YoY to Rs. 24.2 crore. The overall performance was resilient considering the adverse market environment.
Valuation & Outlook
Given the dominant presence in non-metro cities and being the market leader in value priced segment (in terms of volumes), Relaxo is well placed to further consolidate its market share. Over the years, Relaxo Footwear has maintained balance sheet prudence with controlled working capital cycle (NWC days: 65 days), healthy asset turns of 2.5x and generating RoCE of 20%+. Relaxo, through its strong balance sheet and brand patronage, is expected to tide over the current situation better than small peers. We largely maintain our estimates and bake in revenue & EPS CAGR of 10% & 18%, respectively, in FY20-22E. Given the recent correction in stock price (~20%), we upgrade the stock from HOLD to BUY and maintain our target price of Rs. 715 (56.0x FY22E EPS).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Relaxo_CoUpdate_Aug20.pdf
Shares of RELAXO FOOTWEARS LTD. was last trading in BSE at Rs.597 as compared to the previous close of Rs. 596.25. The total number of shares traded during the day was 69511 in over 7305 trades.
The stock hit an intraday high of Rs. 610.3 and intraday low of 585. The net turnover during the day was Rs. 41594605.